Last week, I explained that we use a variety of income sources during our semiretirement. Our fixed-income investments, with the principal to be liquidated at maturity, will cover our anticipated expenses for about 10 years, while another chunk of our portfolio, mostly in stock mutual funds, is left untouched.

In 10 years, when we will be in our 70s, we could use some of the money now invested in the stock funds to create another 10-year income stream while the rest continues to grow.

Or we could buy an immediate annuity guaranteeing an income for life to cover basic expenses, such as food and housing, while making systematic withdrawals from the rest of our portfolio for discretionary expenses.

Or we could simply start making systematic withdrawals from our portfolio to cover all expenses, confident we have enough to last a lifetime.

"You can change how much you withdraw each year, and you have the flexibility to make `big' withdrawals for special needs," explains "Strategies for Managing Retirement Income," a workbook for financial professionals developed by NAVA (formerly the National Association for Variable Annuities) and the International Foundation for Retirement Education. You also can pass more of your money to heirs or to charity.

On the other hand, if we are not careful, we could run out of money. "If you are a `spender,' stay away from this [systematic withdrawal] option" and consider a lifetime annuity for at least part of your retirement income, the workbook advises.

So how much is it safe to spend? While opinions vary widely on an exact number, financial planners generally agree that if you don't want to run out of money in retirement, you'd better not take out a lot at first.

Somehow, this sensible warning has morphed into broad-brush rules of thumb that are thrown around indiscriminately, such as don't withdraw more than 4 percent of the value of your portfolio the first year in retirement.

With enough caveats, such a rule can make sense. The Schwab Center for Investment Research, a unit of the Charles Schwab & Co. brokerage firm, recommends a "4 percent solution" for "conservative-to-moderate investors" who want "a very high level of confidence" of maintaining their standard of living for a retirement lasting 30 years. That means withdrawing 4 percent of the portfolio value the first year, then increasing the amount each year to keep up with inflation.

As a rule of thumb, that's OK. Still, you have to consider many other factors, including whether you want to spend more the first few years while you are younger; any other sources of income you may have; your tax situation; and how much, if anything, you want to leave to your heirs or charity.

That's why, when our turn comes, we'll evaluate our situation each year and modify our plan if needed. As a Schwab Center spokesman said, "The key is to strike a balance between not running out of money prematurely and maintaining a reliable standard of living."

Readers who want to explore this subject in depth should do an Internet search for writings by William Bengen, a certified financial planner in El Cajon, Calif., who has done extensive research on the subject. (Be advised, his writings are aimed at other financial professionals.)

For more consumer-oriented fare, check out the T. Rowe Price "Retirement Income Calculator" at the mutual fund and financial services firm's Web site, www.troweprice.com.

If nothing else, you'll learn that, when following a systematic withdrawal strategy, any projections of sustainable withdrawal rates and future income streams are just that, projections. As the T. Rowe Price site cautions, "There is no assurance that the projected or simulated results will be achieved or sustained."

For that assurance, you need insurance products such as immediate annuities that guarantee an income for life.

Drawbacks include giving up or at least limiting access to principal for both you and your heirs, embedded costs that limit payouts and, for fixed immediate annuities, no protection against inflation. As competition drives insurance companies to tweak and improve these products, we may consider them in the future.

Humberto Cruz is a columnist for Tribune Media Services. E-mail him at yourmoney@tribune.com.

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